Its the Fundamentals, Stupid

I think that if you surveyed all of the "bitter renter" demographic, of which I am one, you would find that the largest percentage of them live in cities where median home prices are *still* in the 300-400k range even after market correction

To those people, its not about the price and catching a falling knife, loosing value, or being able to buy something nicer next year - its that even with a decent paying job and a good down payment (by today's standards) they are still having a hard time finding a home. Its very depressing to be told by everyone that prices are low and its never been better to buy, and that everyone's out looking, why aren't you - and you still can't afford 90% of whats available.

For example, In my neck of the woods, 350k townhomes are labeled as "starter homes" consistently. Lets say you've got the 20% down (70k) and 3% for closing costs / NY tax stamp (~9k) - and 3 months worth of reserve (6k) - that leaves you with a P+I payment of about $1650 at todays rates, +200 in taxes/insurance a month and +150 for association fee so a PITI of $2000.

Average salary in NYC in 2006 was $49,000. So lets say we've got a couple both making 50k, 100k total a year. If They've saved their 85,000, Their DTI would be about 23%. Great, but I'm doubting many couples have that much.

I dont have any numbers on what the average savings are, but lets work with a number thats fairly obtainable - 30,000. In this same scenario, if you have 30k saved, everything changes. You can only put down about 15k - Mortgage payment is now $2000, +200 tax/insurance +150 association ****+150 for PMI*** now we're at $2500 a month PITI.

Thats 30% DTI, and that doesn't include any other costs of living, like car payments - add in $500 a month for that and credit card minimums, and you've just hit the 36% OH NO barrier. Not to mention, I'm not so sure many loan companies are going to be happy making the loan at these numbers - 5% or less downpayment seems a little dicey, one has to hope our couple has EXCELLENT credit, right?

The coup de grace? - Oh yeah, and we can go out and rent that same townhouse for about $1600-1800 a month. So, no, its not just about NEEDING the home, its about having your options for a financially sound purchasing decision to be limited to the bottom of the barrel in terms of home choices. If you want to upgrade from that 350k condo to a small detached ranch, what was the "starter" home for your parents - you'll have to come up with another 100k+ - and that TOTALLY blows the numbers away on affordability.